Senators Investigate FDIC Role in WaMu Sale

A congressional subcommittee is investigating the Federal Deposit Insurance Corp.’s role in the seizure and sale of Seattle-based Washington Mutual Bank in September 2008, a court document shows.

A document recently filed in U.S. Bankruptcy Court in Delaware as part of the Washington Mutual bankruptcy case shows that the Senate Permanent Subcommittee on Investigations (PSI) has subpoenaed the FDIC for documents related to the resolution of WaMu.

The document describes the subpoena as “broad” and indicates that the PSI’s jurisdiction includes investigations into companies and regulatory bodies. The filing says the FDIC is responding to “a massive document request from Congress regarding the resolution of Washington Mutual Bank.”

PSI, a subcommittee of the Senate Committee on Homeland Security and Governmental Affairs, declined to comment on whether an investigation exists.

The FDIC sold Washington Mutual to JPMorgan Chase & Co. after the federal Office of Thrift Supervision (OTS) seized the bank in September 2008. The holding company of the bank immediately filed for bankruptcy.

The FDIC disclosed the PSI subpoena in an objection it filed in the WaMu bankruptcy case. The bank’s holding company has requested permission to subpoena the FDIC, OTS, credit-ratings agencies, and others for information about how WaMu was seized and sold.

Last summer, the Wall Street Journal reported that the PSI had subpoenaed JPMorgan Chase regarding WaMu. An investigation, according to the Journal, appears to focus on whether bankers had private doubts about the soundness of complicated financial products.

The PSI also investigated Seattle-based Quellos, a giant manager of hedge funds that was later sold to BlackRock, a global investment manager. In a 2006 report, the PSI said that Quellos, “designed, promoted, and implemented” a tax shelter that was used to shield $2 billion in capital gains from U.S. taxes, costing the U.S. Treasury $300 million in revenue.

The Office of Inspector Generals for the FDIC and the Office of Thrift Supervision, WaMu’s primary regulator, also are investigating the circumstances of WaMu’s seizure. Richard Del Mar, counsel to the Inspector General of the U.S. Treasury, said his office is aware of the congressional investigation. It’s unclear, however, whether the two agencies are working together.

The Inspector Generals’ WaMu report was initially planned for release in the fall of 2009 but has so far not been released.